Is Iran About Oil Or Nukes?

Feb. 17, 2012 2:11 PM ET

In the course of world events, from time to time there is a voice that rings out, bringing change. Sometimes this is a clarion call to freedom. At other times it's portends the rise of a tyrant. On occasion it's the harbinger of neutral change. And, quite often, the voice that rings out never sees the fruit of his warning.

I am not fan of Iran. It's not that I have anything against them, in particular. It's more than I don't appreciate their religious bigotry or the denigration of freedom that takes place on their shores. Of course, I don't appreciate the denigration of freedom that takes place on our shores either. And, perhaps, that's the point of today's article.

Iran is not telling the US what to do within her own borders. But that is precisely what the US is telling Iran. And, according to statements in The Tehran Times, what the US is doing today is simply par for the course.

For clarity, I'm not anti-war; and I'm not anti-government. There is a place and time for both. However, I am anti-tyrannical war. And I am equally anti-corrupt government. The current posturing in the Strait of Hormuz appears to incorporate both.

Iran is in pursuit of trading oil for assets, commodities and currencies other than the US dollar. Recent embargo efforts certainly aren't detracting them from such pursuits. If anything, it's only strengthening their resolve.

We've discussed the history of this in some detail. What it comes down to is that much of the dollar's strength is tied to its currency of choice in the trading of oil. If Iran, as the third largest oil producer in the world, successfully divorces itself from any dependence upon the dollar, there would most likely be a significant drop in the value of the dollar. Perhaps, even more devastating would be the perception of the dollar, and the US, in the eyes of the world. Consider this quote from Garry White's article in The Telegraph;

"The dispute over Iran's nuclear programme is nothing more than a convenient excuse for the US to use threats to protect the 'reserve currency' status of the dollar," the newspaper, which calls itself the voice of the Islamic Revolution, said."Recall that Saddam [Hussein] announced Iraq would no longer accept dollars for oil purchases in November 2000 and the US-Anglo invasion occurred in March 2003," the Times continued. "Similarly, Iran opened its oil bourse in 2008, so it is a credit to Iranian negotiating ability that the 'crisis' has not come to a head long before now."

Is this the reason for tensions in the gulf? There have certainly been wars for lesser excuses. A falling dollar would obviously be destructive to a US economy already in turmoil. Would war with Iran, in an effort to protect the dollar's place in oil trade, be a viable economic solution?

The US points to nuclear issues as its reason for being in the region. Perhaps there is some legitimacy to such claims. But does the US really have the right to restrict another nation from such pursuits? Is this a moral, ethical, economic or political matter? Regardless of the truth, unless an amiable solution is worked out in the near future, we should expect oil prices to increase.

If the dollar's relationship to oil is not hampered, then the status quo will likely be met for the foreseeable future. However, if nations continue to pursue oil trade denominated in anything but dollars, we should expect the dollar to drop significantly in value.

Whether oil goes up or the dollar goes down, gold is likely to rise. Be prepared.